Space is going to be one of your biggest issues, IMO.
Just 6K sf? You’ll very likely need much more room than that in less than a year.
And that’s just for brewing/tap room purposes. You’re also planning a restaurant and kitchen.
Make sure you have room to build out or grow into more adjacent space.
Be sure to check out the “going pro” audio and presentations from NHC coming out within the next few weeks (AHA member only access) that address this issue as one of the biggest mistakes new brewers make.
I’ve seen about 10% quoted for losses due to transferring, spillage, etc. So something more reasonable would be like 1562 pints @ $5 = 7810, @$4 = 6248. You’d probably be spending about 5-10% of that on ingredients, depending on how strong of a beer you’re making.
A $1m brewery flat-line depreciated over 20 years is still about $50k per year, assuming no salvage value. I’m not really sure how you’d account for the salvage value on brewing equipment and buildings. I’m not really sure how long those tanks and equipment last, either. So if the life on your equipment is less than that, you’ll have a much larger expense.
So making about $5k a batch seems like a lot, until you start thinking about how much capital it takes to get to that point, and we haven’t even touched on labor yet.
I agree with you, but I know others who don’t. To me, an IPA after eating chili peppers is like applying sand paper to my tongue. I’ve been wondering if there is a difference in the way taste buds react among different people.
I eat very spicy food quite regularly and have a high tolerance for capsaicin, but for me hops have little to do with it. I find higher-alcohol beers to be the best for helping my tongue manage capsaicin. If that beer is hoppy, fine, but a tripel wil help as well as a big IPA for me.
I would need a lot more info about the recipes and real estate/rent/equipment prices to get an accurate cost estimate, but I would break the numbers down like this:
Revenue (units sold x $price)
less variable costs
= contribution margin
less fixed costs
= operating income
Most of your costs are going to be a mix of variable and fixed costs. Like utilities, if there’s a flat connection fee (fixed) plus KwH used (variable), or wages if you need to give your cook enough hours that he won’t find another job (fixed) plus overtime if you get busy (variable).
I would use linear programming to formulate the recipes and product mix. My gut tells me you’d end up losing money having 8 different beers on tap, but that’s why you run the numbers to be sure. My gut also tells me you’d lose money making any amount of lager.
Once you have your contribution margin, it’s easy to figure out your break-even point.
Break-even = [fixed expenses / Contribution margin ratio] (Contribution margin ratio is contribution margin / revenue)
I don’t see your logic here. Having more beer on tap is likely to increase sales, not keep them flat. People will try different things and come back more often if there is more variety. If it is licensed for it, you can also have guest taps to make up the difference if you can’t keep your product on.
There are a lot of variables that go into it obviously, but I would not advise anyone to open a pub with fewer than 8 taps. I would probably suggest 16 or 20, with about half guest taps from other local-ish beers and possibly something like Rolling Rock or Yeungling depending on the expected demographic. You want people to try your beer, but you have to get them in the door first.
You can cut down on the number of fermenters to save $$, but make sure the building and equipment can handle more so you can expand easily. Unless you can get a good deal on used ones of course. Make sure the glycol can handle it, the hoses are long enough, the walk in is big enough, etc.
Obviously there will be differences between markets, so look around at the local places and see what they have on tap and how many taps. Around here it’s weird if a place has BMC on tap, but in other places that’s all you can find. You’ve got to know the demo. If most places don’t serve craft beer they you’ll need to spend a lot of time educating your customers and it will probably be best to have some familiar beers on tap for them.
More beer on tap doesn’t necessarily increase sales. Especially if one of your beers has a high margin, and another you’re breaking even on, you’re cannibalizing profitable sales from yourself if they buy the less-profitable beer. The more beer you have (made or bought) the more cash you need upfront to pay for the beer or ingredients. Unless you have so much cash that cash flow doesn’t matter, I would be very concerned about carrying too much inventory that doesn’t move or isn’t profitable enough.
It’s not about increasing beer sales necessarily, it is about increasing total sales. It’s a pub, and if people will sit longer trying different beers or come back more often to try the variety then they are more likely to buy some food too. Adding a couple of taps in the build-out is way cheaper than adding them later.
But hey, that’s what I would do. His place, his decision.
Luckily, once we have an idea of what the costs are, we can use math to determine the optimal solution to maximize profit. Maybe 20, or 16 or 8 taps is the optimal solution. Without any numbers it’s impossible to say definitively.
I agree with nateo. Less taps less inventory. To some extend.
It also depends on how much people you attract in your area.
We had a pub with 27 tap and they did pretty well. Then they added 13 more lines and they stopped to pay the bills. Sales were the same as with 27 taps just had to carry more inventory.
Well, clearly there’s a limit. I don’t know where that is though, I think it depends on the market. There are places in my area with 160 taps that seem to be doing fine. There are some with 60+ that are doing well, and the place I go most has 25+ taps (he just added 8 more) and is doing fine. The local brewery (not a pub, just a production place with a taproom) has roughly 18 taps at two bars, so there is some duplication for now but when they open a new (and bigger) production facility I expect that will change.
Anyway, my point is I think it depends on the market. I can’t imagine a decent sized pub with fewer than 8 taps though, around here they all have more.
Here’s an example of what I was talking about. You could use hundreds of constraints and variables if you wanted to, but to keep it simple I’ll just use a few, and avoid sticky widgets like amortizing cost for equipment or multi-period inventory management, although you can include all of those and more in a more detailed analysis. This is an incredibly powerful tool for analyzing business decisions, and will give you an optimal solution, as well as identify the range in which the answer remains optimal if costs or demands change.
Let’s say you run a 3bbl British brewpub.
You have $5000 cash at the beginning of the week in your beer budget.
You need at least 20 kegs of beer, but you never need more than 60 kegs per week.
The costs of brewing your beer, how much you sell it for per pint, and profit per keg:
mild - $40 / $3 / $320
stout - $50 / 4 / 430
IPA - $60 / 4 / 420
barley-wine - $90 / 5 / 510
The costs of beer you can buy
bitter for $70 / 3 / 290
ESB for $80 / 4 / 400
porter for $90 / 4 / 390
foreign stout for $100 / 5 / 500
(There are 120 pints per keg.)
No more than 1/4 of your sales volume will be from $5 pints, at least 1/3 of your sales volume will be from $3 pints.
(bw + fs) <= 0.25(m + s + i + bw + b + e + p + fs)
= 0.75bw + 0.75fs - 0.25m - 0.25s - 0.25i - 0.25b - 0.25e - 0.25p <= 0
(m + b) >= 0.33(m + s + i + bw + b + e + p + fs)
= 0.67m + 0.67b - 0.33s - 0.33i - 0.33i - 0.33bw - 0.33e - 0.33p - 0.33fs >= 0
The results tell us that the optimal solution is $24822 profit, from 20 kegs of mild, 25 kegs of stout, and 15 kegs of barleywine. It also tells you that for every keg of IPA you add, the profit decreases by $46. For every keg of bitter or esb, it’ll decrease by $30, for porter $40, and for foreign stout $10.
My prof uses Management Scientist. That’s the most “user friendly” program I’ve seen, but it’s pretty pricey to buy new and hasn’t been updated in a while (it won’t work with Win 7). I found an old copy of the textbook with the software for under $10 on amazon (An Introduction to Management Science : Quantitative Approaches to Decision Making by Anderson and Sweeney).
I have http://lpsolve.sourceforge.net/ at home. It’s free, but it’s a little more cumbersome to program. I’ve heard good things about GLPK, but I haven’t used it.
If you’re interested in this sort of thing, I’d recommend picking up a copy of the textbook. Formulating the problems isn’t always intuitive, and the results would be incomprehensible if you’re not sure what each parameter means.
I should add, so you don’t need to do the math, that the binding constraint in that example is the demand (60 kegs). You’d only be using $3400 of your budget for the optimal solution, but you’d decrease your profit and increase your expenses if you need to pursue a sub-optimal solution.
For instance if you wanted to carry all 8 different beers. You could add constraints to make it so the program has to pick at least a certain number of each type of beer. Like m>=1, esb >=1, etc. But in this case, the program would select the minimum number of the other kegs it can, because they’re less profitable.
If you have to buy kegs on a contract or something, like if you have to buy at least 5 kegs of bitter it’d be b>=5x, or b-5x>=0 where bx would be binary: zero if you buy zero, and 1 if you buy any non-zero amount.
If you have a tied-distribution, like if you want to buy a keg of ESB you have to buy a keg of bitter, it’d be esb = b, or esb - b = 0, because all of the programs I know of can’t compute solutions with variable on the right-hand side of the equations.
So, that’s all well and good, but the assumptions you’re making are pretty big ones for a a local brew pub. For example, that there’s demand for that much mild. Or that IPA won’t bring in a bigger crowd to eat your food.
This isn’t budweiser level distribution where you can calculate their exact demand for each product reliably. You can play with the math all you want, but the result is only going to be as good as your model.